How crucial is software license costs to your IT budgeting?

When it comes to managing an organization’s IT budget, there are many factors that need to be taken into consideration. From hardware costs to salaries and training, there are a lot of expenses that can quickly add up. However, one crucial aspect that often gets overlooked is software license costs.  

Software licenses are necessary for organizations to legally use software programs, including operating systems, productivity tools, and specialized business applications. It is these licenses that give users the right to install and use software on their devices and come with specific terms and conditions that must be followed.  

But do you place a premium on what the cost of software licenses can be? Or even when you do, you do the initial costing and fail to factor in the possibility of future increases. Then you can be met with unplanned financial surprises if a thorough deep organizational software IT budgeting is not carried out.  

Software license cost can have the following effect on your IT budgeting if care is not taken or as an organization, you do not know what you want when purchasing licenses. We would like to share how costly software licenses can be on your IT budget.  

1. Impact on overall budget 

Software licenses can make up a significant portion of an organization’s overall IT budget. The cost of these licenses varies depending on the type and complexity of the software, as well as the number of users and devices that will be using them. As your organization increases in size and production, relying on technology to drive your operations will go up. There will be the need to purchase either more licenses to meet demand on device or users. There should be a strategic way to purchase a license that will give access to users who need it to avoid over-procuring. Purchasing licenses and leaving them unused can quickly add up to cost and have a significant impact on an organization’s financial planning.  

2. Complex licensing models 

Software licensing models can be complex and confusing, making it challenging for organizations to accurately estimate their costs. You are likely to start the year with a particular license (s) but may require others to support your work. There may be the need to purchase some additional licenses, or you may be caught for non-compliance. Also, the licensing models of some software vendors like Microsoft such as the per-user or per-device licensing model, and other features may be confusing. Infact, it is in the confusion that these vendors can make more money so be sure you know what you want before you make a move to purchase software licenses.  

Some licensing models may also have different pricing tiers depending on the size of the organization or the industry they operate in. This complexity can make it difficult for your organization during budget planning to accurately forecast your software license costs.  

3. Hidden costs 

In addition to the upfront cost of purchasing software licenses, there are often hidden costs that can take your organization off guard. These may include maintenance fees, upgrade fees, additional user fees, or penalties for non-compliance with licensing terms. These hidden costs can quickly add up and put a strain on your organization’s budget if not considered at the planning stage.   

Also, audits will be carried out on your license use at a point in time if you are a Microsoft customer for example. In the event you are found to be non-complaint, you may have to pay fines or purchase additional licenses that can have a great impact on your budget costs. These are costs you did not budget for at the start of your financial year but must meet them.   

To overcome these unforeseen hidden costs, conduct due diligence with thorough research to understand all potential costs associated with licensing before your IT budgeting starts.    

4. Impact on business operations 

Software licenses are necessary for your organization’s use and to maintain compliance and avoid potential penalties or legal action. If your organization fails to renew its licenses or comply with the terms, it could result in disruptions to your business operations, leading to loss of productivity and revenue. This therefore makes it crucial for your organization to include software license costs in your IT budget planning to ensure uninterrupted use of essential software and continuity of operations.  

In the event where due to poor foresight and planning, software accessibility is limited due to low license availability, it can slow down the productivity of your employees. You may later during the year realize the need for more licenses perhaps due to addition roles but there will not be enough licenses to go around affecting delivery. It is always important to consider how impactful software licenses play a crucial role in your IT budgeting.  

Other variables in your IT budget that can be costs intensive 

Hardware costs 

  • Networking equipment (switches, firewalls)  
  • Storage solutions (cloud storage)  

Infrastructure costs 

  • Data center expenses (electricity, physical security)  
  • Cloud services   
  •  Networking and internet connectivity  

Operational costs 

  • IT operations management tools and platforms  
  • Monitoring and logging tools  

Security and compliance costs 

  • Cybersecurity tools and services (antivirus, intrusion detection systems)  
  • Compliance-related expenses (audits, certifications, regulatory requirements)  
  • Incident response and disaster recovery planning  

How our team of experts can support with your IT budget costs planning 

We will first look at your license road map to understand what license you intend to purchase or use during the financial year. However, if there is no road map, we will support you develop one which will take care of licenses needed, what needs they will meet and how best, how much the licenses will cost and how many users or devices will be associated with the licenses.  

We will also make available our scenarios and experience to guide how each of these components will be carefully planned for, justified, and tracked to ensure your IT budget and strategic goals align with operational needs of your organization.   

Our team of experts will further be available for periodic reviews and adjustments to respond to your organization’s changing requirements and market conditions.  

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